Integrated Reporting - Integrating environmental, social and governance issues in the annual report

Abstract

Background and Problem: Separate reporting of financial information and information on environmental, social and governance (ESG) issues has led investors to not include ESG aspects in their analyses. Investors now demand better access to information on ESG issues. During 2010 financial and sustainability reporting organizations started to develop a new standard on integrated reporting. The challenges are many. There is yet no common definition, and only a few companies have started to integrate ESG and financial information in the annual report. However, integrated reporting is an emerging field of great interest for those interested in new developments within financial and sustainability reporting. Purpose: To present and discuss reasons for the development of integrated reporting, how it can be implemented and what the potential challenges are. Methodology and Research Design: Being a new field the study was explorative and descriptive to its nature. Qualitative data was collected through interviews with practitioners within auditing and banking. Furthermore, examples of integrated reporting were collected through studying annual reports. Findings: Based on the results we can conclude the companies already practicing integrated reporting still faces the challenge of how to relate ESG information with the financial performance. Moreover it is challenging to make ESG information fulfill the same characteristics as financial reporting. However, we can conclude that access to ESG information would benefit investors, companies and their stakeholders, as well as society at large. We believe integrated reporting could allow a better balance between the financial, social and environmental dimensions. Suggestions for further research: Integrated reporting requires further research, such as the development of a new standard, internal systems to make ESG data reliable and accessible, and new measures linking ESG and financial data.